From lean startups to world class operating models

An army of startups and SMEs are changing the status quo by embracing innovative methodologies, such as the Lean Startup or Design Thinking, to build their companies one iteration at a time whilst turning them into highly efficient operating models.

How can all other companies out there join the revolution, including big corporations, and be part of the next business paradigm shift?

Lean Startup

So what exactly is Lean Startup? The officialLean Startup websitedefines the Lean Startup as a “scientific approach to creating and managing startups and get a desired product to customers’ hands faster”.

This definition makes it appear merely as a product development methodology whereas in practice it is much more than this, we will elaborate on this throughout this article. The “Lean Start-up” has become the commonly accepted methodology used by startups or businesses in their very early stages.

The rationale behind the lean startup is that a startup is not a traditional company in the sense that it has not found its business model yet. Where a traditional company’s main focus is on how to best execute a fairly well know business model, the startup seeks for a business model and evolves in a world of extreme uncertainty. TheLean Startupmethodology and underlying principles help startups navigate through this, the main focus being on validating problem-solution fit first followed by product-market fit next.

In other words,thanks to lean startup, two simple questions can be answered: am I solving a problem worth solving and is my proposed solution the best way to solve this problem? Is there a market or demand for the product I am building?

It forces start-ups to test and validate iteratively every single assumptions that will shape their business model. In order to do this, it encourages building what is called “minimal viable products” (MVP), getting out of the building, seeking regular input from customers and measuring relevant metrics to validate key assumptions, whilst at the same time being able to “pivot” and evolve iteratively towards a sustainable product one MVP at a time. This iterative ‘build – measure – learn’ loop is therefore a good illustration of what that methodology involves.

Now that we understand what the Lean Start-up is, let’s have a quick look at another very popular methodology everyone is talking about: Design Thinking.

Design Thinking

Design Thinking has been around for quite some time but has recently come back in fashion considered by some to be a fad but accepted by most as a powerful methodology, even philosophy, to solve problems with a human-centered perspective - a combination of empathy, creativity and rationality to come up with fit-for-purpose and insightful solutions.

In practice, and plain English,Design Thinkingenables you to deeply understand the end-user’s behaviors, motivations and needs, mainly through observations and other empathetic techniques, to design, build and deliver fit-for-purpose experiences, products, and/or services. Design Thinking helps entrepreneurs or corporations think like designers i.e. putting themselves into the customers’ shoes.

According to Tim Brown, CEO and president of IDEO,

The goal of Design Thinking is matching people's needs with what is technologically feasible and viable as a business strategy."

This is the reason why this methodology has become extremely popular for any brand out there trying to figure out how to maximize value for their customers and deliver targeted products, services and experiences.

But are there any other reasons why those methodologies are so popular?

Max value + min resources

To try to answer this difficult question let’s analyze the similarities between those two approaches. Both approaches aim to minimize waste with a view to build or design a fit-for-purpose outcome with minimal effort.

Maximizing value whilst minimizing resources and effort is at the heart of those two approaches. They are both human-centered, highly iterative, involve building and releasing prototypes with a view to validate and refine the outputs iteratively. Typical questions involved in both approaches are: Are we solving the right problem based on our deep understanding of our end-user? Are we offering the best solution to solve this problem? Are we iterating and refining solutions based on measured and validated learning?

In business terms those approaches can save you a lot of money, reduce risk considerably, drive efficiencies and business performance, encourage collaboration and improve company culture, overall improve branding and benefits to customers or end-users.

Those traits or characteristics appear to be what makes those methodology not only popular and effective but also attractive and fun to use.

Those methodologies can be in practice used to solve any problem, design and build any type of output.

So, if they are so effective, why aren’t they more broadly adopted by the business world then?

Novel vs. traditional methods

As mentioned earlier, startups are constantly on the hunt for product-market fit and demonstrating business viability i.e. business model. Uncertainty is extremely high, resources are scarce, structure minimal – a startup has to minimize waste and iterate as quickly as possible towards a sustainable business model or die.

The novel methodologies do therefore make perfect sense at those very early stages. Applying traditional management practices, which used to be the norm not so long ago including the requirement to write comprehensive business plans for startups, was actually an aberration.

On the other hand traditional businesses i.e. businesses that have a demonstrated business models, mature organizational structures, management systems and operating models follow the same old business frameworks and rules that have been around for decades. Their bigger size and complexity makes any change difficult and challenging.

The majority of directors or executives from those companies have actually never heard of those novel methodologies – which were not born when they were on business schools benches or university benches and which are not broadly promoted by thought leaders that they commonly use such as big accounting and consulting firm that still favor the traditional methods and/or apply their own proprietary methodologies instead.

There are however major corporations out there, leader in their fields, that live and breath those thinking such as General Electric (GE), Google, Amazon or Apple to name the most iconic ones.

This new methodology is based on the Lean Startup and complements or even replaces other continuous improvement strategies, such as Six Sigma. More than 40,000 GE employees have been trained to date.

According to Nicholas Heymann, an analyst at William Blair,

This thing is the newSix Sigma, It’s exponentially more significant than a traditional corporate restructuring. In this case, you’re trying to transform how you do business.”

This last comment says it all, those methodologies have the power to rethink completely the way corporations operate. GE is now running more than 350 FastWorks projects internally and shifting its operating model to adopt those agile practices – one step at a time with clear tone from the top.

Applenow is another great example of big and successful corporations out there embracing those philosophies. The difference with Apple is that it has sort of always been doing “Design Thinking” and “Lean Startup” without putting a name on those methodologies. In a nutshell, and as summarized in a well written Harvard Business Review paper “Design Thinking and Innovation at Apple” , the ingredients to Apple’s success include:

Design thinking,

Product development strategy and execution,

CEO as chief innovator, and

Bold business experimentation.

This last experimentation point is at the heart of those methodologies – experiment, measure and learn – iterate.

Similarly, one last powerful example includesAmazonwhich success can be summarized by:

Innovation in products,

In work processes and

An agile business model.

Amazon is a huge, lean, and learning machine focused on two things: customers and products – and lean and agile everywhere in between to be able to iterate and deliver the right product meeting their customer needs. Amazon’s could be called a “lean enterprise” in its quest to operate with extreme agility and focus on things that matter with velocity. This goes well beyond the product development cycle as core business processes such as supply chain management are a core part of the customer experience – internal processes are almost part of the product.

Now it is obvious startups are doing it, major corporations also doing it, re-inventing the way they operate based on those methodologies, how could any company out there benefit from adopting those as well?

What is at stake

Let’s take a step back to our lean startup and have a look first atwhat it is likely to look like when it grows up.

By extrapolation a Lean Start-up is programmed to transform itself into a highly agile, lean and efficient corporation. Whilst growing in size and maturity will involve introducing complexity, adding structure and a slightly more rigid operating model, the foundations should remain the same. Every business decision is likely to go through the same methodological iterative cycle that shaped this startup into a successful company in the first place. In other words business decisions or problems which need to be solved will obey the same principles and follow the same iterative approach with a view to significantly mitigate risk.

A new capability needs to be added? A new process redesigned? A new market penetrated? A new product engineered? A new employee hired? A new software or system needs to be developed and rolled-out? Any business decision will be subject to the cycle of validating whether we are solving the right problem, whether we are focusing on the right solution, and validating underlying assumptions through thebuild – measure – learnloop. This will result in highly efficient execution whilst effectively mitigating all risks involved and lowering cost.

This is where the benefits lie, any company out there by shifting towards those novel and agile methodologies will initiate a shift towards:

Being more agile in an ever changing world; and

Being more efficient and waste-free in a resource constrained world.

Now that we understand what is at stake, why those methodologies / philosophies, if used properly, can have a significant positive impact on organizations out there and who can benefit from them (everyone!), the real question becomes: how can it be done? How can anyone embed those practices to initiate a deep cultural and organizational transformation?

How to start?

Whilst this could appear difficult even daunting at first, the approach is more simple than it seems and the answer is actually in the methodology itself. The following points should provide some useful guidance on how to start this journey:

The most important element is toensure there is a strong appetite, vision, and will to drive change and introduce these novel methodologies at the top and that it clearly align with the strategy and innovation imperative. This means clear tone from the top and effective leadership embracing, promoting and sponsoring the vision top-down.

Phase the transformation by experimenting solving one problem after the other – in particular those that can add maximum value with limited time and money investment and that have a high inherent risk attached to them.

Therefore start the journey with one burning business problem / challenge you are facing which needs to be resolved. Run this as your first experiment.

For this first experiment,pick a business problem that bears a high level of risk or uncertainty i.e. not something you can fix in a very systematic and well understood way where those methodologies would have limited benefits.

In particular pick a problem which involves a fair degree of change management or in other words one which requires adoption by a wide range of individuals (both internal and external). Those stakeholders that will need to collaborate to come up with an optimal solution.

Select the problem and stakeholders which are likely to be early adopters of this novel methodology, in other words who are by nature more entrepreneurial and willing to try and adopt new things. Those stakeholders will inevitably become early adopters and champions of the new methodology and help drive effective change management on the long run by spreading the vision and practices.

Have a plan or established methodology people can follow and which connects top-down approach with bottom-up experiments – or in corporate jargondesign the right policies, governance framework, processes, and incentives & rewards including ability to manage and measure the process itself. The framework itself can be lean at first but would mature based on validated learnings as the bottom-up activity (problems being solved) increases over-time.

Use a consultant experienced in those methodologies that will effectively guide you design the right framework, project manage the transformation and coordinate the underlying experiments whilst at the same time train stakeholders involved in applying the methodology. Start with an external resource before you build, if required, your own internal capability.

Build, measure and learnfrom this first experience. Re-iterate solving another problem and keep going making this a habit and part of your day to day operation.

Over time, by making this a highly iterative and collaborative process, going through various cycles ofbuild-measure-learnloops, you are guaranteed to deeply transform your organization into a highly agile, efficient and waste free organization, equipped to operate in a world that is ever-changing, with high level of uncertainty and limited resources.

In simple termsyou will operate in a startup fashion with the ability to drive all types of innovation (individual initiative, process improvement, continuous innovation and disruptive innovation) and related transformation and change involved at all levels of your organization.Welcome to the new business paradigm and good luck on this fantastic journey!